Tariff turbulence: Can Bangladesh’s RMG sector stay competitive in the US market?

Bangladesh's ready-made garment (RMG) sector has long been the engine of its economy, contributing over 80% of export earnings and employing millions. Over the past three decades, the country has built a reputation as a reliable supplier of quality apparel at competitive prices. 

However, recent developments in the US' tariff regime — particularly the reclassification of reciprocal tariffs — have cast uncertainty over the sector's continued growth in one of its most important markets.

The US has now imposed a 20% most-favoured-nation (MFN) tariff on apparel imports from Bangladesh. While this alone presents a significant challenge, the situation is further complicated by the application of strict Rules of Origin (RoO). 

If these RoO criteria are not met — particularly when raw materials are sourced from third countries such as China — the effective tariff could rise to as much as 50%, placing Bangladesh at a substantial disadvantage compared to its global competitors.

This shift is part of a broader recalibration of US trade policy, aimed at rewarding sourcing diversity and reducing dependence on specific countries, notably China. As a result, Bangladesh's apparel exports are being scrutinised not only for their final point of assembly but also for the origin of their inputs. 

The implications for a country whose apparel supply chain still relies heavily on imported fabrics and accessories — especially from China — are significant.

When viewed in comparison, Bangladesh's position becomes more vulnerable. India, a major competitor, faces a 25% tariff but enjoys stronger backward linkage industries. Vietnam, meanwhile, benefits from free trade agreements (FTAs) with the US and other partners, giving it an advantage through reduced or zero tariffs.

Cambodia and Pakistan face a 19% rate, while countries such as the UK (10%) and the European Union (0% under GSP+) enjoy even more favourable access. In light of these disparities, Bangladesh risks losing price competitiveness in the world's largest apparel import market.

Beyond tariffs, structural weaknesses further exacerbate the challenge. The absence of FTAs with key markets such as the US and Canada, limited product diversification, and a dependency on a narrow range of basic apparel categories — like T-shirts, sweaters and denim — hinder Bangladesh's ability to move up the value chain. 

High-value apparel segments such as technical garments, sportswear, and fashion-intensive lines remain underdeveloped. Additionally, inefficiencies in logistics — such as port congestion and customs delays — lengthen lead times and undermine buyer confidence.

These risks are not merely hypothetical. The US is Bangladesh's second-largest garment export destination. Any erosion in market share could trigger cascading effects across employment, foreign exchange reserves, and macroeconomic stability, especially as the country prepares to graduate from Least Developed Country (LDC) status and lose preferential trade benefits in the coming years.

To remain competitive amid this tariff turbulence, Bangladesh must adopt a multi-pronged strategy. First and foremost, restoring Generalised System of Preferences (GSP) privileges with the US should be a diplomatic priority. 

Bangladesh must also reduce its dependency on imported raw materials by strengthening domestic backward linkages through investment in spinning, weaving, and dyeing industries. Meeting RoO requirements would then become more achievable, mitigating additional tariff burdens.

Secondly, the country must diversify its apparel portfolio. High-value and technical textile segments should be developed, supported by innovation, enhanced design capacity, and workforce upskilling. Bangladesh should also actively pursue trade agreements — such as FTAs or Comprehensive Economic Partnership Agreements (CEPAs) — with major markets. Parallel efforts to digitise customs operations, improve logistics, and reduce lead times will help bolster global buyer confidence.

Equally important is ensuring compliance with international standards on labour rights, environmental sustainability, and governance, especially as these are conditions for continued GSP+ benefits in the European Union. A proactive strategy now will safeguard the RMG sector against future shocks and open doors to new opportunities.

The US tariff adjustment is not merely a policy shift — it is a test of resilience for Bangladesh's apparel industry. With thoughtful reforms, strategic diplomacy, and investment in competitiveness, the country can weather this storm and emerge stronger in a rapidly evolving global trade landscape.

Dr Md Neyamul Islam is an expert in international trade and tariff policy.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.